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After buying up mining assets around the world over the past two decades to secure the metals needed for industrialization and more recently to meet its carbon emissions targets, China now wants to have a say in how the metal prices.
But Beijing has lost market share in metal futures trading and needs to convince international investors to use the Shanghai futures exchange. If successful, the push would help give the Shanghai contracts benchmark status and subvert the reference pricing system for industrial metals that has been in place since 1877, when the London Metal Exchange. Lme, began its business, reports OF.
It would eliminate the need for Chinese companies to link their physical contracts to LME prices and create the need for foreigners to trade in Shanghai to influence reference prices in their contracts, shifting market influence from the West to China.
The Shanghai Stock Exchange has told industry players that this is the priority and will likely be implemented soon; the exchange has sought to have warehouses outside China to store metal delivered for copper contracts that launched on its International Energy Exchange for foreigners in 2020.
Shanghai has told industry shareholders it plans to soon expand into international metals storage, bidding to compete with LME’s global network of more than 450 registered warehouses that hold thousands of tonnes of aluminium, copper and other metals.
Once Shanghai makes a firm decision to offer metal storage outside China, the process of registering warehouses will be very quick, as facilities already exist at ports that see large flows of metals; it will not need regulatory approvals for warehouses that can store deliverable metal under its contracts, as long as they are located in free trade zones, so the metal can be stored tax-free until delivered to customers.
The Shanghai stock exchange is aware that countering the LME will not be an easy task, even though China consumes more than half of global supplies of copper, aluminum and zinc and produces large quantities of these metals. Ultimately, the exchange aims to list aluminium, zinc, nickel, lead and tin, already traded on the LME.
Maddalena Ingroia
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